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Do You Need Institutional 'Weapons' to Defend Against Wealthy Capitalists?

Politics / US Politics Nov 15, 2012 - 12:30 PM GMT

By: Jeff_Berwick


Best Financial Markets Analysis ArticleEd Bugos writes: The anarcho-capitalist movement appears to be tweaking the interest of the young leftist movement, which historically represents the radical side of the political spectrum. Maybe the time has come for "revolutionary politics." In his 1969 essay, "The Death of Politics", Karl Hess concluded that the world was not yet ready to realize that the social problem involved a choice not between different parties but rather politics and freedom:

"Radical and revolutionary movements seek not to revise but to revoke. The target of revocation should be obvious. The target is politics itself."

Where would the state be without the political means? Just another company vying for your patronage!

Rothbard is the father of the modern anarchist (anarcho-capitalist) movement, and it is gaining momentum - from both new recruits on the left and the growing pool of libertarian minarchists. Ron Paul has done a wonderful job of educating young people and is filling the minarchist pipeline for their future conversion into anarchists. The conversion only requires some reading now. The literature from the Rothbardian lineage has piled up since the 1970s; it now may increasingly overwhelm the historical anarchism of the left (Kropotkin, Bakunin, Cafiero, etc.).

As anarchists we often get asked questions from newcomers to these ideas.

In the hope of reaching out to radicals on the left, sitting on the fence, we offer a reply to one of their questions.

"Ed, how would you respond to someone who says that democracy (voting) and unions are the only weapons the serfs have against the wealthy capitalists?"

Almost every peer I've referred this question to did the same.

Their eye balls rolled back, first to the top of their sockets, and then into the back of their skull, and back to the bottom of their eye sockets before the invariable exasperated sigh came out: "just tell them to go read a book !"

Almost any book would do. For, the thought of needing a "weapon" to defend myself against "wealthy capitalists" is like the thought of needing a chaperone to make sure attractive women don't take advantage of a young single man when he is out on the prowl. "No, no, Elle McPherson, get away from me! I'm calling my union rep!!"

But we appreciate that in this world, where people are blasted by propaganda every day by a media uncritical of its own government, a few words on the subject to explode the myths as succinctly as possible may be helpful.

The Use of the Language of Warfare in Voluntary Transactions is Manipulative and Uninformed

On the use of language that implies hostility in economic relationships, in chapter 18 of his 2010 book, Building Blocks of Liberty , Walter Block writes that: "Pundits are accustomed to utilizing the language of war and strife to depict economic relationships. This is confusing, irrational and misleading " (and absurd, we might add).

He writes that concepts such as "price war" or "hostile takeover" are mutually beneficial voluntary transactions if we take account the specific parties making the transaction (i.e. buyer and seller), with only 3rd parties, like "the CEO who was ripping off the firm " or the "Marxist [who] might have his nose put out of joint by all commerce ", seeing it as hostile. What of those cases where the employees of a firm that has been "taken over" are let go?

The quick answer is that if they are let go, then the firm was inefficient. So you have to ask if it makes sense for the consumer to have to subsidize particular employees. If someone is making the firm more efficient then they are benefitting society by freeing the labor that was being wasted in order that it adds to society's total capital.

In a voluntary system the use of the terminology of economic "warfare" is manipulative. It is intended to stir emotions, rouse the political means and build pretext by depicting capitalists in the Dickensonian sense.

In order to avoid this pitfall it helps to understand what free market capitalism actually is. As we have harped in many essays at TDV, the world doesn't have free market capitalism today. What it has is state capitalism.

"Free-market capitalism is a network of free and voluntary exchanges in which producers work, produce, and exchange their products for the products of others through prices voluntarily arrived at. State capitalism consists of one or more groups making use of the coercive apparatus of the government -- the State -- to accumulate capital for themselves by expropriating the production of others by force and violence ." -- Murray Rothbard

State capitalism is a partnership between business and government where bureaucrats benefit for obvious reasons and "wealthy capitalists" for less obvious reasons. It is geared towards a controlled economy, which builds castes...where in order to be wealthy you must have license...where competition is restricted so that the existing wealthy capitalists are benefitted as barriers to entry are erected against new competition...and where the state facilitates their economic rents (extra-market profits).

For my take on why and how the rich prefer "state capitalism" and abhor "free market capitalism," and how the language of the socialists actually supports them in this aim, see my essay: "Freedom: A Truly Unknown Ideal".

But for the purposes of this essay, Rothbard's distinction between the two kinds of capitalism is sufficient.

For once you see that we are talking about the type of capitalism that implies "a network of free and voluntary exchanges... " then it should be rather obvious that the terminology of "economic warfare" is misleading.

As Mises writes in his masterpiece, Human Action :

"Government is an apparatus of compulsion and coercion. It has the power to obtain obedience by force. The political sovereign, be it an autocrat or the people as represented by its mandataries, has power to crush rebellions as long as his ideological might subsists. The position which entrepreneurs and capitalists occupy in the market economy is of a different character. A 'chocolate king' has no power over the consumers, his patrons. He provides them with chocolate of the best possible quality and at the cheapest price. He does not rule the consumers, he serves them ." ~ Mises

Progressives (or social democrats) might still argue that by virtue of their simply possessing wealth in a voluntary society, which they equate to "power", capitalists can still "force" workers to accept subpar wages. Of course, by restricting competition, as under state capitalism, or total socialism, the state effectively transfers economic power from the consumer to the "wealthy capitalists" whose status inherently opposes free market competition.

What the questioner above really wants, however, is more "power" to the common laborer who he feels capitalists exploit in their pursuit of satisfying the apparently finite needs of consumers.

For a refutation of this "exploitation theory", I would highly recommend reading George Reisman's refutation (his original refutation is from his 1985 book Capitalism: A Treatise on Economics (updated version).

The Primacy of Profits!

Karl Marx argued that wealthy capitalist profits represent a discount from the final value of goods produced that belong to the worker in the first place (a.k.a. the "primacy of wages" doctrine because of the assumption that wages somehow existed before capitalists), and that their greed ultimately drives wages down to a bare subsistence level (Iron Law of Wages). George Reisman's position, and the position of most Austrian Scholars since Bohm Bawerk, is that this discount truly belongs to capital (as interest) as upfront payment for goods that take a long time to produce, and which would not even be possible to produce without the capital (equipment, tools, technology and other machinery) provided by the entrepreneurs and capitalists. In other words, the free market capitalist system does not steal labor. It adds value to it. It allows labor to produce more, which is the true source of the wage earner's increased living standards (i.e. not the union). In fact, labor would not exist if someone didn't save and form/accumulate capital (by which we do not mean financial capital) in the first place.

As Reisman puts it:

"...capitalists do not impoverish wage earners, but make it possible for people to be wage earners. For they are responsible not for the phenomenon of profits, but for the phenomenon of wages. They are responsible for the very existence of wages in the production of products for sale. Without capitalists, the only way in which one could survive would be by means of producing and selling one's own products, namely, as a profit earner. But to produce and sell one's own products, one would have to own one's own land, and produce or have inherited one's own tools and materials. Relatively few people could survive in this way. The existence of capitalists makes it possible for people to live by selling their labor rather than attempting to sell the products of their labor. Thus, between wage earners and capitalists there is in fact the closest possible harmony of interests, for capitalists create wages and the ability of people to survive and prosper as wage earners. And if wage earners want a larger relative share for wages and a smaller relative share for profits, they should want a higher economic degree of capitalism--they should want more and bigger capitalists."

So much for exploitation I hope, heh?

If it weren't for those "wealthy capitalists" there would be no such thing as a wage. If there were no capital goods to form the basis of some kind of voluntary social cooperation people would be forced to produce only for themselves and their family. The surplus of this labor would be called a profit not a wage. Only when the saved surplus is large enough to invest in roundabout production processes can a wage be afforded at all.

What of the Iron Law of Wages?

Clearly, once you accept that capital adds to the product of labor you can see that free market capitalism puts upward pressure on real wages, not down. The main mistake in Marx's theory is his reliance on the labor theory of value, which is part of a doctrine that assumes the value of a final good is determined not by the subjective whims of consumers who want to own the final good, but rather, by the value of inputs going into its production.

Marx got this from Smith and the neoclassical economists.

It was the reason they all couldn't solve the paradox of value--the paradox that drew confusion over the fact that water, which is necessary for almost all life on this planet, had less value than diamonds that we could do without. It was stuff like this that ended the reign of the neoclassical school in the 19th century.

Austrian School founder Carl Menger led the marginalist revolution that solved the paradox by explaining what almost no one who can read should be confused about today. But just in case, I will elaborate. The idea is that value is derived from the tastes & preferences of consumers, and that the value of all inputs - all the way down to the highest order goods that are used in the chain of production - is derived from the value of the final good.

If you still think in terms of the Iron Law of Wages, then you need to update yourself for the last 120-something years of advances in economics. You can see that in the real world, where free competition in labor is allowed to flourish (i.e. not unions), workers can go work for someone else if they are not getting paid their real worth.

Likewise, the idea that unions (rather than capitalism) are responsible for increasing the living standards of the workers in the post industrial era is erroneous. They destroy capital and cause wages to fall in non-unionized sectors because of the fallout from the unionized monopoly. But this part is more difficult to show people who are sold on unions and democracy and are taught to hate inequality and the requisite accumulation of capital.

Marxism, not Capitalism, Turns Non-Capitalists Into Serfs

Interestingly, by the use of the term "weapon" the opening question all but admits that the institutions of democracy and of the union are institutions of "compulsion and coercion". Much of the justification for the need of a weapon to defend against "wealthy capitalists" has just been refuted. The reader should already see that the use of such terminology is inappropriate, at least as regards free market capitalism (as opposed to "state capitalism")...that wages would not exist without capitalism, that "between wage earners and capitalists there is in fact the closest possible harmony of interests ", and that capitalism does not cause real wages to fall. That is, the justification for coercion against wealthy capitalists is void of support right off the bat. It requires one to gain a distortion of the way the voluntary world around them really works. It is a revision of reality--like a stick man.

Another misstatement involves the use of the word "serf". The author of our original question likens anyone who is not a "wealthy capitalist" to a serf. His implication is that: 1.) we have free market capitalism today; and 2.) that if it weren't for his favorite coercive institutions the wealth capitalists would have thrown us back into feudalism.

Perhaps socialists like to frame a voluntary society in the sense of the feudal system because to them that is an example of society in history without government. While monarchs existed, society under feudalist society had not yet evolved into the consolidated absolutism of the 16th and 17th centuries, to which it gave rise. But the fact is that it was a system of very unequal rights and privileges. The natural law philosophers had not yet developed the rights of man in the Lockean sense -which essentially is that all men are presumed equal before the law...i.e. none of them should have privileges or "authority" over others (i.e. the source of the "nightwatchman state").

As Jesus Huerta de Soto writes, feudalism was the system that arose following the collapse of Roman Civilization, which fell due to the weight of the empire brought to bear upon it through the process of increasing regimentation, statist corruption, regulation, and monetary debasement: "Cities gradually began to run out of provisions, and the population began to leave and return to the countryside, to live in much poorer conditions in an autarchy, at mere subsistence level, a regime that laid the foundation for what would later be feudalism."

That is, feudalism was the result of decivilization, which de Soto argues is what Leviathan (big government) brings. Whatever your account of history, whether by the corruption of leviathan or the barbarians at their door, who would blame free market capitalism nearly 2000 years ago for the fall of Rome and the rise of feudalism?

However, for folks unaware of the difference between free market capitalism and state capitalism (fascism) I suppose it may be forgivable that they liken the road of capitalism toward a possible feudalistic society.

For it is the latter that plagues us today, and is responsible for the building of empire.

And it is the collapse of leviathan that will bring us to the same fate as Rome's, and give rise to feudalism.

It is the messianic belief in the idea of "democracy" as a religion that will first drive leviathan.

Democracy versus (Free Market) Capitalism

So we know there is no real justification to use coercive institutions (the political means) as "weapons" to defend against anything in a voluntary free market capitalistic society, which we don't even have, and have yet to try.

We also know that the attempt to use the language of warfare to describe economic relationships is misplaced and manipulative -the socialists, for instance, like to depict capitalists as exploitative so that they can justify their coercive institutions. And we know that the analogy of feudalism, to the extent that it fits at all, belongs with the system of state capitalism, and not free market capitalism. Hence if we need wider suffrage, it is to allow more people to participate and protect against the coercive use of the state by an unchecked aristocracy or oligarchy.

But this system of democracy, besides all of its other problems, is even inferior to the market in these aims.

As Mises put it:

"The market is a democracy in which every penny gives a right to vote ." (Planned Chaos )

Here the socialists probably think I've screwed up. For them, the point is that the more dollars you have the more "power" you can therefore implement in society...the more control you have. But we have already shown that the capitalists and entrepreneurs are at the mercy of the consumer who truly holds this power under free market competition while under state capitalism the producer (both labor and the capitalists) has this power.

"Profit and loss are the instruments by means of which the consumers keep a tight rein on all business activities...When we call a capitalist society a consumers' democracy we mean that the power to dispose of the means of production, which belongs to the entrepreneurs and capitalists, can only be acquired by means of the consumers' ballot, held daily in the marketplace ." (Bureaucracy; Socialism )

And, moreover, it is the forces of free market capitalism, restricted as they are, which created the middle class.

"Capitalism is essentially a system of mass production for the satisfaction of the needs of the masses. It pours a horn of plenty upon the common man. It has raised the average standard of living to a height never dreamed of in earlier ages. It has made accessible to millions of people enjoyments which a few generations ago were only within the reach of a small elite." (The Anti-Capitalistic Mentality )

But the basic point behind the comparison of the democracy of the free market to that of a political democracy is that in the latter whatever has been voted for, whether by 100% of the electorate or by 51%, the resulting law or regulation or standard is going to be a one-fits-all solution...the same across the board. If the state were in charge of the production of shoes, democracy or not, everyone would be wearing what the majority decided; but in a free market system, every penny counts (unlike every vote in a democracy), with the result that the free market system produces sizes and styles of shoes for everyone's taste and all manner of occasion from the most important (that the central planner wouldn't think of) to the most specialized and even least important.

"The democracy of the market is not the democracy that Plato spoke of in his Republic (c. 370 BC) as 'a charming form of government, full of variety and disorder, and dispensing a kind of equality to equals and unequals alike,' nor that Aristotle in his Rhetoric (c. 322 BC) chided as 'when put to the strain, grows weak, and is supplanted by oligarchy.' It is not that which George Bernard Shaw taxed in his Maxims for Revolutionists (1903) as substituting 'election by the incompetent many for appointment by the corrupt few,' nor that Hans-Hermann Hoppe exposes in his Democracy--The God That Failed (Transaction, 2001, p. 96) that 'majorities of 'have-nots' will relentlessly try to enrich themselves at the expense of the 'haves'.'"

Indeed, in the democracy of the market there is room for everyone to be happy!

So put away the weapons. Make trade not war.

Jeff Berwick

Anarcho-Capitalist.  Libertarian.  Freedom fighter against mankind’s two biggest enemies, the State and the Central Banks.  Jeff Berwick is the founder of The Dollar Vigilante, CEO of TDV Media & Services and host of the popular video podcast, Anarchast.  Jeff is a prominent speaker at many of the world’s freedom, investment and gold conferences as well as regularly in the media.

© 2012 Copyright Jeff Berwick - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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